Skip navigation

Fidelity Cuts Fees for 27 Index Funds in Bid for Passive Assets

(Bloomberg) -- Fidelity Investments, known for its history in active money management, is cutting fees for 27 index mutual funds and exchange traded funds in a bid to attract more assets into passive strategies.

The reductions will save current investors about $20 million annually, and bring the average expense ratio for the funds to 10.2 basis points from 11.6 basis points, Boston-based Fidelity said Tuesday in a statement. Two of the funds will have an expense ratio of as low as 1.5 cents per $100 invested, depending on the share class, when the changes go into effect on July 1.

Fidelity, which oversees $216 billion in index mutual funds, is taking the steps as investors increasingly favor passive funds over higher-cost active funds that have largely failed to beat markets. At Fidelity, passive funds have attracted $58 billion since the end of 2011, while active funds saw outflows of $69 billion, according to Morningstar Inc.

“We have been in the active management business for 70 years and the index business for 25 years,” said Colby Penzone, senior vice president for Fidelity’s Investment Product Group. “We believe in the power of active management, but we recognize some customers are interested in indexing so we provide them with a choice and value.”

Fidelity is best known for its active stock funds and its top performing managers. Peter Lynch, who ran the Fidelity Magellan Fund, returned 29 percent a year between 1977 and 1990 compared with 15 percent for the Standard & Poor’s 500 Index. Some of its current managers, including William Danoff at the $108 billion Fidelity Contrafund and Joel Tillinghast at the $40 billion Fidelity Low-Priced Stock Fund, have beaten their benchmarks by a wide margin over the past 25 years.

Vanguard Group, which has grown to become the world’s largest mutual fund manager by offering low-cost investments, this year slashed fees as low as 1 cent per $100 invested to clients with more than $3 billion in selected funds, such as the $373 billion Vanguard Total Stock Market Index Fund. The fund manager is prepared to cut fees further as it seeks to increase market share and boost investor returns in an environment of modest gains, Vanguard Chief Executive Officer Bill McNabb said earlier this month.

Active fund managers have struggled to meet benchmarks, causing investors to flock to low-cost index funds. Laurence D. Fink, CEO of BlackRock Inc., said last month he expects consolidation in the asset-management business because too many managers can’t generate returns higher than their benchmarks, and that the shift into indexing will not only continue but will be “ massive.” Active investment managers may need to shrink assets by as much as a third if they want to beat industry benchmarks, Peter Kraus, CEO of AllianceBernstein Holding LP, said.

To contact the reporters on this story: Taylor Hall in New York at [email protected] ;Charles Stein in Boston at [email protected] To contact the editors responsible for this story: Christian Baumgaertel at [email protected] Vincent Bielski


Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.